It takes some gall to announce that you’re giving a sports team $220 million the same day you announce future cuts for the University of Wisconsin System amounting to $300 million.
Apparently, Scott Walker had gall Tuesday.
The always entertaining governor of Wisconsin announced his shiny new “Pay Their Way” plan for the Bucks, trying to hide in legalese that he’s basically giving a pair of billionaires $220 million in public funds.
The title “Pay Their Way” implies that the Bucks will pay back the state of Wisconsin for its investment, with Walker saying the funds would be “paid back by projected growth in income taxes from the Bucks, as well as visiting teams, due to salary increases and new TV contracts.”
Sean Dinces, an associate professor at UW and expert on stadium financing, explained to me why this means nothing.
“Walker is attempting to make it sound like using the tax money is a “no cost” approach for the public,” Dinces said. “This is not the case, there is an obvious “opportunity cost” involved in diverting increases in tax revenue away from public goods like education (or, alternatively, increasing tax rates in order to maintain or increase spending in those areas).”
“Another way to think about this ... is that essentially Walker and company are agreeing to burden the state (i.e. taxpayers) with a sizeable amount of the investment risk in the new arena. In other words, the public bears much (if not most) of the risk, while the team keeps all of the profits.”
That should clear up any confusion or rationalization: Walker is giving the Bucks $220 million.
Let’s make one thing perfectly clear: The Bucks did not need this money. Their franchise value currently stands at $600 million according to Forbes’ annual team valuations and that could be a conservative estimate. Like pretty much every sports league in the United States, NBA revenues have skyrocketed and will continue to do so for the forseeable future. The team’s two owners, Marc Lasry and Wesley Edens, are estimated to have a combined net worth of $2.9 billion. Putting up $520 million instead of $300 million would have carried more risk, but the financial reward would have still been worth it.
Lasry and Edens are investment bankers from New York. What do investment bankers do when acquiring assets? They try to minimize risk and maximize reward.
Know what’s a good way to minimize risk? Have local and state governments pump hundreds of millions of dollars into your acquisition with no expected return.
The Bucks saw a chance to make basically free money and took it. The thing is, though, the state of Wisconsin didn’t have to give it to them. Everyone was simply afraid that the Bucks would leave if they didn’t cave.
Walker says in his press release that the Bucks would have likely left in 2017 if they didn’t receive the money (which they didn’t need, they just want to maximize revenue be it in Milwaukee or Seattle).
It’s hard to quantify a public’s love for its sports team, but we have to wonder if it’s worth $220 million in state money during a budget shortfall, when the UW System is taking $300 million in cuts and almost every social program is under budgetary fire.
It’s telling the decision to spend this money isn’t likely to come to a public vote or even a Wisconsin Senate vote.
It’s because they would have likely said no.
So congratulations Bucks fans, you’ve got your new stadium. Except the team didn’t need that money. But hey, at least the Bucks are here to stay.
This is awesome news, unless you’re a University of Wisconsin student. Or teacher. Or anyone benefiting from a social program. Or someone who dreams of a not-bankrupt state of Wisconsin. As long as you’re not any of those, congratulations.
